Second Sovereign Credit Rating issued for the Maldives

27th October 2018

Fitch Ratings, one of the top three rating agencies in the world has issued a sovereign credit rating for the Maldives, on Thursday 16th May 2017. Fitch has assigned a long term local and foreign-currency issuer rating of B+, with a Stable Outlook. This rating is comparable to the sovereign ratings of other developing nations at similar stages of development as the Maldives, including neighboring countries and other small island developing economies. This is the second sovereign credit rating to be received by Maldives, with the first rating published by Moody’s Investor Services in September 2016. The Fitch rating for Maldives is one step above the Moody’s rating.

Fitch assigned the B+ rating based on the strong economic growth potential driven by a healthy outlook for the tourism sector. The rating highlights the potential for the ongoing projects such as the upgrading of the Velana International Airport and the development of Hulhumale’ Youth City to boost tourism sector in the coming years. Fitch also highlights the prospects for fiscal balance, noting the strengths in generating revenue on the back of a strong tourism demand and the measures taken by the government to consolidate expenditures. As such, the government is committed to complete the program to rationalize recurrent expenditures towards a more sustainable path, and improve the ratings. With the rating exercise Fitch also notes the vulnerability of the Maldives economy to external and domestic developments that could undermine the tourism sector, given the high dependence on the sector. As such, the ratings report highlights the importance of economic diversification, as well as reinforcement of foreign exchange reserves and the reduction in public debt as factors that could lead to an improvement in the current rating. The government acknowledges these factors and is taking actions to address these risks. The government is facilitating the diversification and expansion of the economy with a legal framework more conducive to foreign investments through Acts such as the Special Economic Zones Act. With these measures the Maldives is attracting more foreign direct investments, which is in turn strengthening our reserves position. With the recognition of the need to manage the risks inherent in the buildup of public debt for the ongoing infrastructure scale up, the government has established the Sovereign Development Fund to build savings of the government to service the debt.

A sovereign credit rating is a public good; the benefits of which can be reaped by the government and the private sector. Sovereign credit ratings by two of the top rating agencies in the world will open the possibility for financial institutions and private corporations established in the Maldives to raise funds in the international financial markets. The government is fully committed to improve the ratings and improve the financing prospects for the private sector. It should also be noted that as a national benchmark, any actions that could undermine the economy, especially tourism would also affect the sovereign rating and consequently the ratings of all businesses established in the country. As such, political stability and social coherence is paramount in maintaining our image as a tourism destination. It is therefore the duty of the entire nation to improve the ratings.